Micro finance institutions :  Micro finance institution (MFI) are financial companies that provides small loans to people who do not have any access to banking facilities . The definition of small loans varies between different countries . In India ,all loans that are below Rs. 1 lakh can be considered as a microloans .  Although most microfinance institutions target the eradication of poverty as their motive , some of the new entrants are focussed on the sale of more products to consumers . Goals of microfinance institutions  Transform into a financial institution that assists in the development of communities that are sustainable .  Help in the provision of resources that offer support to the lower sections of the society .There is a special focus on women in this regard ,as they have emerged successful in setting up income generation enterprise .  Evaluate the options available to help eradicate poverty at a faster rate .  Mobilise self employment opportunities.  AS PER WORLD BANK DATA , CLOSE TO 1.7 BILLION PEOPLE ACROSS MULTIPLE COUNTRIES DO NOT HAVE ACCESS TO BASIC FINACIAL SERVICES . THIS IS WHERE MICROFINANCE INSTITUTIONS PLAY A MAJOR ROLE . Key benefits  It enables people expand their present opportunities .  It provides easy access to credit facilities  It make future investments possible  It serves the under –financed section of the society  It helps in the generation of employment opportunity  It inculcates the discipline of saving  It brings about significant economic gains  It results in better credit management practices It results in better education Microfinance includes the following products:  Microloans - Microfinance loans are significant as these are provided to borrowers with no collateral. The end result of microloans should be to have its recipients outgrow smaller loans and be ready for traditional bank loans.  Microsaving’s – Microsaving’s accounts allow entrepreneurs operate savings accounts with no minimum balance. These accounts help users inculcate financial discipline and develop an interest in saving for the future.  Microinsurance - Microinsurance is a type of coverage provided to borrowers of microloans. These insurance plans have lower premiums than traditional insurance policies. In some situations, recipients of microloans are expected to take some training courses, such as cash flow management or book-keeping. Groups Organised by Micro finance Institutions in India  Joint Liability Group (JLG ) This is usually a informal group that consists of 4-10 individuals who seek loans against mutual guarantee .Each individual in a JLG is equally responsible for the loan repayment in a timely manner .  Self Help Group It is a group of individual with similar socio- economic backgrounds .These small entrepreneurs come together for a short duration and create a common fund for their business needs .

1. Micro finance
S.Sivaranjani
I – M.A.Economics

2. Micro finance institutions
 Micro finance institution (MFI) are financial companies that provides small
loans to people who do not have any access to banking facilities . The
definition of small loans varies between different countries . In India ,all
loans that are below Rs. 1 lakh can be considered as a microloans .
 Although most microfinance institutions target the eradication of poverty as
their motive , some of the new entrants are focussed on the sale of more
products to consumers .

3. Goals of microfinance institutions
 Transform into a financial institution that assists in the development of
communities that are sustainable .
 Help in the provision of resources that offer support to the lower sections of
the society .There is a special focus on women in this regard ,as they have
emerged successful in setting up income generation enterprise .
 Evaluate the options available to help eradicate poverty at a faster rate .
 Mobilise self employment opportunities.
 AS PER WORLD BANK DATA , CLOSE TO 1.7 BILLION PEOPLE ACROSS MULTIPLE
COUNTRIES DO NOT HAVE ACCESS TO BASIC FINACIAL SERVICES . THIS IS WHERE
MICROFINANCE INSTITUTIONS PLAY A MAJOR ROLE .

4. KEY BENEFITS
 It enables people expand their present opportunities .
 It provides easy access to credit facilities
 It make future investments possible
 It serves the under –financed section of the society
 It helps in the generation of employment opportunity
 It inculcates the discipline of saving
 It brings about significant economic gains
 It results in better credit management practices
 It results in better education .

5. Differences between Bank and MFIs
Basis of Distinction Microfinance Banks
Maximum loan Rs , 1000 Rs 50,000
Collateral Security No need Need
Interest rates ( per
annum )
24% 16%
EMI week wise Monthly wise

6.  Types of Microfinance
Microfinance includes the following products:
 Microloans - Microfinance loans are significant as these are provided to borrowers with no collateral.
The end result of microloans should be to have its recipients outgrow smaller loans and be ready for
traditional bank loans.
 Microsaving’s – Microsaving’s accounts allow entrepreneurs operate savings accounts with no
minimum balance. These accounts help users inculcate financial discipline and develop an interest in
saving for the future.
 Microinsurance - Microinsurance is a type of coverage provided to borrowers of microloans. These
insurance plans have lower premiums than traditional insurance policies.
In some situations, recipients of microloans are expected to take some training courses, such as cash flow
management or book-keeping.

7. Groups Organised by Micro finance
Institutions in India
 Joint Liability Group (JLG )
This is usually a informal group that consists of 4-10 individuals who seek loans against mutual
guarantee .Each individual in a JLG is equally responsible for the loan repayment in a timely manner .

8.  Self Help Group
It is a group of individual with similar socio- economic backgrounds .These
small entrepreneurs come together for a short duration and create a common
fund for their business needs . These groups are classified as non- profit
organization . The group takes care of the debt recovery . There is no
requirement of a collateral in this kind group lending .

9.  Grameen Model Bank
The Grameen model was the brainchild of Nobel Laureate Prof. Muhammad Yunus in
Bangladesh in the 1970s . It has inspired the creation of Regional Rural Banks (RRB) in India .The primary
motive of this system is the end –to-end development of the rural economy . However, in India ,SHGs have
been more successful as MFIs when compared to Grameen Banks .

10. Rural Cooperatives
Rural cooperatives were established in India at the time of Indian Independence .The
resource of poor people were pooled in and financial services were provided from
this fund. However, this system had complex monitoring structures and were
beneficial only to the creditworthy borrowers in rural India. Hence, this system did
not find the success that it sought initially.

11.  Highlights
 NBFC-MFIs have registered a 24% YoY growth recently. They also have a market share of 38% in in Q3 FY19
and have maintained their dominance in the lending market. (As per SIDBI-Equifax newsletter).
 The total number of active loans of MFIs stand at 8.22 crore at the end of Q3 FY19. The GLP (Gross Loan
Portfolio) was at Rs.1,57,644 crore at the same time. This indicates a Q-o-Q growth of 7%.
 Microfinance institutions have a presence in 615 districts in India. The regional distribution is as follows:
 North-East and East – 37%
 South – 25%
 North – 14%
 West – 15%
 Central India – 9%
north-east aand
east
37%
south
25%
north
14%
west
15%
central india
9%
Microfinance institutions

13.  Where do MFIs get their funding?
MFIs secure funding from a variety of sources, which depend in part on their
status.
grants and subsidies, particularly during the MFI’s creation,
member and customer deposits, for MFIs organized as cooperatives or mutual
funds, as well as microfinance banks that also offer savings products,
the MFI’s own capital, generally supplying a small portion of funding,
loans granted by one or more partner banks,
funding from public investors, typically comprising bilateral or multilateral
organizations like the European Investment Bank (EIB), IFC, KFW, AFD, Proparco,
etc.
private investors, supplied directly or through investment funds specializing in
microfinance (microfinance investment vehicles, or MIVs), which serve as the
intermediary between the MFI and investors searching for a socially responsible
investment.

14.  Lenders Offering Microfinance Loans to MFIs
 Reliance Money – Reliance Money offers microfinance solutions at great interest rates by partnering
with microfinance institutions (MFIs). The documentation required for this is limited. Wholesale
funding is provided to MFIs for on-lending. The lender also helps with guarantees so that MFIs are able
to get loans from alternative sources.
 State Bank of India (SBI) – SBI offers loans to microfinance institutions and NGOs that act as
intermediaries for financing the needs of eligible entrepreneurs in the lower segment of the society.
These term loans can be repaid every month, quarter, or at intervals of 6 months. The total repayment
period cannot be more than 3 years and cash credit loans should be renewed on an annual basis.
 Axis Bank – Axis Bank offers loans to microfinance institutions that financially empower low-income
earners and micro-entrepreneurs. The bank has partnered with several MFIs across the country. Term
loans are offered by the bank to MFIs that extend this to the eligible borrowers.
 DCB Bank – DCB Bank offers two types of products as part of microfinancing. These are term loans and
loans to MFIs for on-lending purpose

16. Top micro finance institutions in India
 Equita’s Small Finance .
 ESAF Microfinance and Investment (P) Ltd
 Fusion Microfinance Pvt Ltd
 Annapurna Microfinance Pvt Ltd
 Arohan Financial Services Limited
 BSS Microfinance Limited
 Asirvad Microfinance limited
 Cashpor Micro Credit
 Bandhan Financial Services Limited
 Fincare Business Services Limited

17. What is Microfinance Loan
 A Microfinance Loan is a form of lending typically utilised by those sections of
the Indian society who have not had any access to formal banking services in
the past.
 By providing credit to borrowers and small business owners at the bottom of
the economic pyramid, the microfinance sector plays a vital role in promoting
inclusive growth in our country. By offering loans and credit access to nearly
64 million borrowers, who until then had limited or no access to formal
financial services, the microfinance industry has made a significant
contribution in creating opportunities for low-income families and
households.
 Furthermore, according to Microfinance Institutions Network's (MFIN) report,
the microfinance industry boasted a total loan portfolio worth Rs. 1,90,684
crores in the first quarter of FY 2019-20, with a 42.9 percent growth over the
previous year's corresponding period.

18.  The borrowers of microfinance loans generally come from a low-income
background (below the poverty line), with little or no access to traditional
financial services.
 The loans offered to the borrowers are usually small amounts, i.e.,
microloans.
 The tenure of microfinance loans is short and is typically from 12-24 months.
 Microfinance loans do not require any security or collateral by the borrower.
 Loans are repaid at a higher frequency, usually on a weekly, bi-weekly, or
monthly basis.
 Most microfinance loans serve as means for income generation.

19. Types of Microfinance Loans
 In the Indian market, most of the microfinance institutions disburse loans either through Self-Help Group
(SHG) model, or the Joint Liability Group (JLG) model. Furthermore, some of the types of microfinance loans
include:
 Income Generation Loans: Income generation loans are typically given to joint liability groups, and provide
them with the capital to start or grow their small businesses or micro enterprises.
 Mid-Term Loans: Mid term loans are made accessible after 25 weeks of repaying the income generation loan.
Furthermore, an individual is eligible for a mid-term loan if they do not take the maximum amount of the
income generation loan, as the remaining amount is usually disbursed as the mid-term loan.
 Emergency Loans: Emergency loans are interest-free, and are available to the individuals throughout the
year. Emergency loan amount is typically lesser than income generation loan amount, and the repayment
terms differ from one borrower to the other, and is agreed upon by the MFI and the borrower. These loans are
disbursed to meet expenses such as hospital admissions and treatments, funerals etc.
 Individual Loans: Individual loans are given to clients whose needs are specific, and require collateral and a
guarantor. These loans are provided outside of the group lending process, and the loan amount is usually
higher than that of income generating loans. Furthermore, a rigorous assessment of the individual’s business
and the cash flow is conducted before the disbursement of individual loans.
 Education Loans: Education loans are provided to clients to ensure that the educational requirements of their
children are met.
 Consumer Product Loans: Consumer product loans are provided to individuals to improve their quality of
lives, by offering them access to products such as cook stoves, mobile phones and solar lights or lanterns.
 Dairy Cattle Loans: Dairy cattle loans enable individuals to purchase new cattle, or improve dairy farming
activities, thereby increasing their income level.
 Agriculture Loans: Agriculture loans help farmers and other individuals in purchasing seeds, fertilizers,
livestock and other equipment, thus improving the crop quality and yield.

20.  Eligibility & Documents Required for Microfinance Loan
 To be eligible for microfinance, the income limit for a rural household is Rs. 1.25 lakhs, while the income limit
for urban and semi-urban households is Rs. 2 lakhs.
 Documentation required for microfinance loans differs from one lender to another; the following documents are
generally required while applying for a loan.
 Filled and updated application form
 PAN card, passport copy, ration card
 Proof of office address
 Passport-size photographs of the applicants and co-applicants
 Certified copies of MOA/Partnership deed/AOA
 Repayment history
 Audited financials of the last two years
 ITR of partners and/or directors for the previous two years
 Bank account statements for the previous six months
 Proforma invoice for the equipment that is being financed
 Professional qualification certificates for CAs, lawyers, architects and doctors

21.  Key Benefits of MicroFinance Loan in India
 Enabling access to credit among the marginalised section in the country.
 Offering entrepreneurs the opportunity to build start-ups and successfully hire employees, thereby
increasing job creation.
 Allowing healthcare and education for people who cannot afford such facilities.
 The loans do not burden the applicant and repayment is convenient through easy installments.
 Promotes the overall welfare of the economic groups within the nation.
 You can also get an instant business loan regardless of whether you are a first-time borrower or have a
credit history. With the help of Bajaj Finance Business Loans available on Bajaj Markets, you can get
your hands on loan amounts of up to Rs. 25 Lakhs. With flexible loan repayment tenures of 12-60
months and quick sanctions, you can get your instant loan approval within 3 minutes. Further, the
amount is credited into your bank account in a day without any hassle.

22.  Microinsurance is a category of insurance policies designed for the betterment
of the economically vulnerable population of the country. This category has
been created by the Insurance Regulatory and Development Authority of
India (IRDAI). Microinsurance is governed as per the IRDAI Microinsurance
Regulations, 2005. Such a policy can belong to General Insurance as well as
the Life Insurance category. However, the defining quality of such policies is
that the sum assured offered by them is equal to or less than Rs. 50,000.
 Microinsurance, can enable some sort of insurance cushioning for the
economically vulnerable population. Such plans can provide a sense of
security to low-income people that are unable to afford the popular form of
insurance.
Micro insurance

23. Types of Micro insurance
1) General Microinsurance
A General or regular Microinsurance product covers health insurance, personal
accidents, and assets such as livestock, hut, etc. This product can be availed at
an individual or a group basis.
2) Life Microinsurance
A Life Microinsurance Plan can be Term or an Endowment Plan. It can be
purchased at an individual or a group level and with or without an accident
benefit. Such plans can also be related to health insurance.

24. 1)Endowment/Pension Microinsurance
It offers survival as well as death benefits as per the terms and conditions
Pension allowance can also be built-in
2) Term Microinsurance
Covers life risk with accidental benefits
Some insurers offer permanent disability benefits
3) Health Microinsurance
It covers pre-and post-hospitalisation expenses
Covers medical bills for diagnosis, medical bills, etc.
4) Property Microinsurance
It offers coverage due to damage/losses of properties due to natural calamities.
This policy offers compensation due to the theft of assets.

25.  Advantages of Choosing Microinsurance Policies:
The biggest advantage concerning Microinsurance is that it offers the
opportunity for the economically vulnerable section of the population to
buy insurance at a low cost. Because of buying Microinsurance Policies,
they can receive financial assistance during challenging times. This will
result in the safeguarding of their savings, which are usually on the
lower side. Here are some top advantages of specific Microinsurance
Covers

26. Importance of Microinsurance Policies:
 They are an accessible risk-management tool to reduce financial vulnerability
in times of adversity.
 The affordable premium of such plans is an incentive for better reach in an
organized manner.
 Microinsurance covers the policyholder’s financial liability as per the chosen
plan.
 Microinsurance helps the poor to save money.
 Can bring about a positive change in poor people’s perception of insurance.

27. Difference between SLG and JLG
JLG SHG
It is controlled externally by the institutions
that promote them .
It has Internal control ,but this can lead to
conflict among members
But in JLG ,saving is not an compulsory Under an SHG , the group members will be
required to save before they are eligible for
a loan .
Since JLG, are managed externally , there
is very little focus on capacity building
Hence it can procure loans and also referred
to as a “ fast growth models”
Donor agencies support SHGs in skill
development and capacity building through
NGOs .
It is a expensive model It is a low cost management

28. Parameter SHG Model JLG model
Financial Focus Based on savings Based on credit
Control and Owner ship With members With the promoting
microfinance institutions
Capacity Targets Builds internal capacity Depends on external
capacity
Functional focus Poverty Finance
Decentralisation High Low
Cost Low High
Flexibility High Low

29.  Micro-savings is a microfinance branch, consisting of a small deposit account
provided to families or individuals with low income as an opportunity to store
funds for potential use. However, micro-savings accounts operate similar to a
standard savings account but are structured around smaller amounts.
 The minimum balance requirements are always excluded, or very minimal, so
consumers can save small amounts of money and may not be charged for the
service.
 In developing countries, micro-savings plans are usually offered as a means of
encouraging savings for education or other future investments. Those who
invest in these programs are better prepared to deal with any unexpected
expenses, which would usually affect individuals with low income.
Micro savings

30. Key facts…
 The Indian microfinance market is expected to grow at a brisk compounded
annual growth rate (CAGR) of more than 40 per cent through 2025,
predominantly on account of the increasing demand for microfinance loans from
the MSME sector. There are a few aspects that are essential to the domain
 The microfinance industry’s gross loan portfolio has shown an increase of 23.5% on
yearly basis to ₹2.93 lakh crore as on June 30, 2022 from ₹2.37 lakh crore last
year.
 According to the Reserve Bank of India, a microfinance loan is defined as a
collateral-free loan given to a household having annual household income up to ₹3
lakh.
 Among states, Tamil Nadu is the largest state in terms of gross loan portfolio
followed by Bihar and West Bengal.
 The microfinance industry began in India in the 1980s taking inspiration from
Bangladesh.
 According to the World Bank’s data as of 2020, more than 500 million people
directly or indirectly benefited from microfinance-related operations. Still, these
kinds of services are available to only twenty per cent out of the three billion
people who qualify as the world’s income poor.

32. Challenges Faced by MFI
 Over-indebtedness due to multiple borrowings and inefficient risk
management
 High rates of interest as compared to mainstream banks
 Over-dependence on banking system for funding
 Lack of awareness of financial services
 Regulatory issues

33. Thank You